Basics of Futures and Options – Knowledge Check

Futures are most understandable when considered in terms of commodities.The buyer of a futures contract is not required to pay the full amount of the contract up front. A percentage of the price called an initial margin is paid.Futures contracts tend to be for large amounts of money..(1)Futures are great for trading certain investments.(2)Fixed upfront trading costs (3)No time decay (4)Liquidity (5) Pricing is easier to understand.Futures Are Riskier than options

An option gives an investor the right, but not the obligation, to buy (or sell) shares at a specific price at any time, as long as the contract is in effect.
A futures contract requires a buyer to purchase shares, and a seller to sell them, on a specific future date unless the holder’s position is closed before the expiration date.The risk to the buyer of a call option is limited to the premium paid up front.

However suitability of futures or options depends upon the risk taking ability of the individual.